Auto Sales Face Tough Month as Cash Crunch Grips Country

Maruti Suzuki Ltd said on Thursday monthly domestic sales rose about 14.2 percent year-over-year in November, and rose 2.1 percent month-over-month.

Indian auto makers are generally expected to report weaker transactions for November as a severe cash crunch impacts the country, hitting retail sales.

Maruti Suzuki, the country's biggest auto maker, said total domestic sales rose to 126,325 vehicles from 110,599 in the same month last year.

It had clocked sales of 123,764 vehicles in October. Other automakers will report November sales numbers later on Thursday and in the coming days.

Automobile dealers around the country have reported seeing a sharp fall in sales after Prime Minister Narendra Modi's surprise move to ban 500 and 1,000 rupee denominated notes last month, which accounted for 86 percent of currency in circulation.

The move has sparked concern it will dent growth in India's consumer demand-reliant economy at a time when gross domestic product had expanded at an annual 7.3 percent between July and September, the fastest rate for a large economy.

Analysts say sales of two-wheelers are likely to be impacted the most since around 40 percent of transactions are financed by cash, according to Credit Suisse estimates.

Cars, especially more premium ones, are mainly financed with non-cash, but nonetheless are still expected to suffer from reduced sales because of weak consumer sentiment, though analysts hope sales will start recovering after two quarters when the cash crunch subsides.

"Our discussion with dealers suggests that customers are delaying bookings rather than cancelling them at this juncture, which could be due to liquidity shortage affecting small businesses and poor customer sentiment," Kotak Institutional Equities said in a recent note.

On the ground, dealers back up that premise.

In Guwahati, the largest city in remote northeast, a Toyota showroom that only a few weeks ago was bustling with customers looked desolate during a visit this week as young sales executives impatiently waited for the next customer.

"Earlier we sold anything between 60 to 70 vehicles a month, but post-demonetization the sales have come down drastically by more than 50 percent," Dip Bayan, senior sales manager of Gargya Autocity Pvt Ltd, the largest Toyota dealer in the northeast, told Reuters.